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China coal prices hit record highs

Shivani SinghReuters
China's power plants are scrambling to stock up on coal, sending prices of the fuel to record highs.
Camera IconChina's power plants are scrambling to stock up on coal, sending prices of the fuel to record highs. Credit: AP

China's energy crisis has deepened as cold weather swept into much of the country and power plants scrambled to stock up on coal, sending prices of the fuel to record highs.

Electricity demand to heat homes and offices is expected to soar this week as strong cold winds move down from northern China.

Forecasters predict average temperatures in some central and eastern regions could fall by as much as 16 degrees Celsius in the next 2-3 days.

Shortages of coal, high fuel prices and booming post-pandemic industrial demand have sparked widespread power shortages in the world's second-largest economy.

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Rationing has already been in place in at least 17 of mainland China's more than 30 regions since September, forcing some factories to suspend production and disrupting supply chains.

The most-active January Zhengzhou thermal coal futures hit a record high of 1,669.40 yuan ($A350) per tonne early on Friday. The contract has risen more than 200 per cent in the year to date.

The three northeastern provinces of Jilin, Heilongjiang and Liaoning - among the worst hit by the power shortages last month - and several regions in northern China including Inner Mongolia and Gansu have started winter heating, which is mainly fuelled by coal, to cope with the colder-than-normal weather.

Beijing has taken a slew of measures to contain coal price rises including raising domestic coal output and cutting power to power-hungry industries and some factories during periods of peak demand. It has repeatedly assured users that energy supplies will be secured for the winter heating season.

But power shortages are expected to continue into early next year, with analysts and traders forecasting a 12 per cent drop in industrial power consumption in the fourth quarter as coal supplies fall short and local governments give priority to residential users.

Earlier this week, China in its boldest step in a decades-long power sector reform said it would allow coal-fired power prices to fluctuate by up to 20 per cent from base levels from October 15, enabling power plants to pass on more of the high costs of generation to commercial and industrial end-users.

Steel, aluminium, cement and chemical producers are expected to face higher and more volatile power costs under the new policy, pressuring profit margins. Data on Thursday showed factory-gate inflation in September hit a record high.

China aims to be "carbon neutral" by 2060 and Beijing has been trying to reduce its reliance on polluting coal power in favour of cleaner wind, solar and hydro. But coal is expected to provide the bulk of its electricity needs for some time.

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